Social Security and Medicare

Social Security and Medicare are the biggest fiscal issues that Congress should and could address; But it hasn’t happened because the members of Congress care more about the power struggle between the two parties and getting re-elected than they care about doing what is right for the American people. The members of Congress are most interested in the short term: they’re afraid that if they talk about the hard choices that must be made to keep Social Security and Medicare solvent in the long term, they may lose votes in the next election. The end result: they ignore the problem, and they don’t develop solutions!

Here are the facts about Social Security:

69% of benefits go to retirement payments
17% of benefits go to disability payments
14% of benefits go to survivor payments (mostly widows)

At present, there are 3.3 workers for each social security beneficiary. This number will drop to 2.1 workers per social security beneficiary by the year 2031. After 2031 it will remain around 2.1 for the rest of this century. This is a result of the "baby boomers" entering retirement age, and increases in life expectancy. As a result, somewhere between the years 2017 and 2019 social security will begin running an annual deficit, and if no changes are made, we will have a TWELVE TRILLION DOLLAR debt in the social security fund in this century. (These numbers were calculated by the U.S. Government Accountability Office in 2005.)

Many young people I talk to during the campaign say “I don’t care about social security. I’m not going to get it anyway.” But ignoring the problem does not solve a TWELVE TRILLION DOLLAR debt that will occur if we don’t make some changes.

What is the SOLUTION?

We can keep social security in the black FOREVER with the least amount of pain if we make changes NOW. This requires increases in revenue, and decreases in expenditures. The following combinations of options will solve the problem:

-Increase the current social security payroll tax from 12.4% (6.2% each from the employee and employer) to 13.4% (6.7% each).
-Cut benefits for new eligible beneficiaries through a 30 year, phased in, progressive system. All new beneficiaries (all people who begin to receive social security benefits after 2010) would receive less than they would under the present system. However, low income seniors will experience very small reductions. Most of the reduction would be means-tested: this means retirees with high annual incomes would experience the majority of the cuts in social security benefits. Overall, this will result in an 8% reduction in social security payments.
-raise the income limit for the social security tax from what it is currently ($90,000) to "$90,000 or 50% of total income, whichever is higher", but with proportional increases in benefits.
-allow younger people to opt to pay 2.7% of their income into social security instead of 6.7%, with the contractual agreement that they will not receive any future benefits from their 2.7% payments. If they opted for this plan, they would be required to put 4% of their income into a long term retirement plan such as an IRA account. This would provide revenue to social security with no outlays, and allow people to seek higher rates of return from investing 4% of their income in retirement accounts.

None of these components are particularly attractive, but hard choices have to made! If this combination of sacrifices were implemented, the burden of solving a TWELVE TRILLION DOLLAR problem would be shared in a fair way; Social Security would remain in the black forever, and the security of our loved ones would be guaranteed for their retirement years.

One note: President Bush’s privatization plan for social security that he proposed two years ago would have done NOTHING to solve the TWELVE TRILLION DOLLAR problem. It would only have allowed younger people to opt out of a significant amount of their participation in social security without changing the revenue/outlay balance. We still would have ended up with a TWELVE TRILLION DOLLAR problem.

Medicare

Unfortunately, medicare faces a similar long-term debt issue that is probably worse than that facing social security. I have not yet studied this problem in enough detail to propose a solution. Give me time…….

So: Elect someone who is interested in solving problems. Elect someone who doesn’t want to be a lifetime politician. Elect someone who will call attention to difficult, important issues that need to be addressed. Elect someone who will not turn a blind eye to tough problems. Elect someone will shout “The Emporer has no clothes!” and will force Congress to face difficult choices!

Vote for John Mertens for U.S. Senate in 2006!